A third-party logistics company is an outsourced service that many companies operating in the eCommerce space utilize to store and ship their goods. A third-party logistics company offers many benefits, such as inventory management, warehousing, and order fulfillment. For more information on the definition of a 3PL, review our article on the topic.
But what are the pros and cons of 3PL? And why use third party logistics? Let’s analyze some of the pros and cons of implementing third-party logistics.
Pros of Third Party Logistics
Hiring a third-party logistics service can be a fantastic idea that helps streamline and automate retail order fulfillment. Here are seven prominent benefits of hiring a third-party logistics company for your business.
- Cost and Time Savings: One of the key benefits of using a third-party logistics provider is cost savings. To save money, your company can leverage a third-party logistics service’s lower rates for inventory management, transportation, and dozens of other tasks. Using third-party logistics also helps reduce or eliminate expenses like constantly maintaining your own warehouses and fleets of trucks, vans, and other vehicles. Another benefit of using a third-party logistics provider is time savings. Outsourcing logistics allows businesses to focus on core priorities, such as product development and customer relations.
- Relatively Easy To Set Up: Establishing a relationship with a third-party logistics company is relatively straightforward. The best 3rd party logistics providers offer streamlined, cloud-based services, so you don’t have to handle complicated processes or invest in unwieldy technology. Since many third-party logistics companies are willing to tailor services to your company’s needs, it’s also easy to quickly scale the services up or down as necessary. Third-party logistics services are also simple to set up because they have extensive expertise in handling a range of logistics. A third-party logistics provider can guide your company through the process and help you determine what service your company needs.
- Ability To Scale Operations: By hiring a third-party logistics company that provides a diverse range of services and expertise, your business can more readily scale its in-house operations without costly investments such as hiring additional staff. Services such as real-time data analysis, visibility tools, and adjusted pricing models are commonly offered by third-party logistics providers. These tools can help you scale up your operations while minimizing expenses.
- Tap Into Updated Warehouse & Logistics Technology: Third-party logistics companies are a valuable resource for warehouse and logistics technology in which your company may otherwise not be able to invest. Many third-party logistics providers work to stay up-to-date with the latest logistics technologies that would be too costly for most companies to invest in on their own. Examples of this type of technology are inventory and transportation management systems. These systems manage inventory and shipping routes, optimizing your company’s logistics to save you time and money. Using a third-party logistics company means your company can access these technologies and optimize your logistical processes without investing in the tech yourself.
- Improved Operations and Inventory Management Due to Expertise and Specialization: Using a third-party logistics service’s expertise and specialized tools can help improve your company’s operations and inventory management. Outsourcing logistics to a third-party service benefits companies because the service is better equipped to track, monitor, and adjust inventory and other operations. Ultimately, utilizing a third-party logistics service allows you to benefit from their advanced skills and experience without the considerable expense that generally comes from retaining such high-level skilled labor as in-house employees.
- Access To Value-Added Third Party Logistics Services: A third-party logistics business offers a wide range of services, including inventory management, assembly, kitting, order fulfillment, packaging and labeling, and even customization. Companies who hire a third-party logistics service can use these value-added services at a fraction of the cost compared to doing the same operations in-house. Access to value-added third-party logistics services can also help your business improve its customer satisfaction ratings. Services previously unavailable to your most valuable clients, like custom labeling or shortened delivery times, may be available as a third-party logistic service.
- Ability To Test New Geographic Markets: With a third-party logistics provider, your company can test new geographic markets without having to allocate valuable resources. Third-party logistics services often have well-established networks in different regions where you might want to expand your customer base. Using a third-party logistics service allows you to test these new markets and determine the viability of expansion without expending resources on new facilities, staff, or other requirements. In this way, a third-party logistics company helps reduce risks and lets you gain better insights for future business strategies.
Cons of Third Party Logistics
Utilizing a 3rd party logistics services isn’t a perfect solution for every logistical issue in business; it could actually lead to unexpected problems. Here are seven possible cons of utilizing a third-party logistics company.
- Lack of Control Over Logistics Operations: A primary concern about using a third-party logistics service is the need for more control over your company’s logistics. Handing over the responsibility of logistical operations to a third-party means you have much less oversight of day-to-day activities and may lack access to real-time information. This lack of control can lead to issues such as miscommunications, insufficient inventory, delayed deliveries, and more. The best way to avoid these issues is to hire a reputable third-party logistics service that provides transparency and open channels of communication.
- You’re Only As Good as the Logistics Provider: Outsourcing logistics operations is a fantastic idea that can improve efficiency and reduce costs. However, if the performance of your third-party logistics service is unreliable or inefficient, your company’s reputation and bottom line could suffer. Bad logistics can lead to delays, stockouts, and similar issues that cause customers to be dissatisfied and damage your company’s reputation. It’s crucial for your company to evaluate potential third-party logistics providers and ensure everyone involved understands your expectations.
- Not a Set It and Forget It Strategy – It Requires Time and Up Front Costs: Utilizing a third-party logistics service is not a “set it and forget it” system.” First, while using a third-party logistics company can save you time and money in the long run, initiating the partnership requires a significant upfront investment of time and energy. You will have to research potential providers, negotiate contracts, and establish metrics. You will require ongoing communications in the future to ensure your third-party logistics service is meeting your needs and delivering good service. It will also be necessary to continually assess any available data provided by your logistics provider so that you can make changes to adapt to emerging trends and demands on your business.
- May Not Have Easy Access to the Stock (if Your Logistics Company Is in a Different Area): One of the challenges of outsourcing logistics to a third party is that they may not have access to the company’s inventory if they’re in a different area. This issue might create delays in shipping which can negatively affect your customers’ experience. Other location-related challenges include customs clearance, language barriers, and different time zones. These issues can further complicate your company’s logistical processes. The best option in this situation is to research potential logistics providers prior to signing any contracts. Assess your company’s needs and determine what location-based issues could arise before investing in a partnership.
- Integration With Systems Can Be Tricky: Introducing a new third-party logistics provider into your company’s existing systems and processes can be a tense situation. Integrating a logistics provider can be challenging, whether it’s incompatible technologies, different data formats, or some other inconsistency. Many third-party logistics providers may even have their own proprietary systems, which can’t be integrated and require you to learn a new approach in order to use the third-party logistics provider’s services effectively. The most straightforward approach to addressing these concerns is to design and implement an integration strategy that allows you to map data, test processes, and engage in ongoing monitoring to ensure the third-party logistics provider handles your data correctly.
- Individualized Service May Be Unattainable: While most third-party logistics providers strive to offer some individualized service, they may not be able to handle logistics with the same degree of personalization as an in-house staff could. A lack of individualized service can sometimes result in delayed responses to customer inquiries, little to no customization options, and much less flexibility in handling unique client preferences. This is another scenario where consistent monitoring and frequent communication between your company and the third-party logistics provider is vital.
- Communication Is Challenging: While frequent communication is vital and can often solve many issues, it can be challenging when working with a third-party logistics provider. Third-party providers have multiple clients, each with their own needs. This situation can make it challenging to commit adequate time and attention to each client, including your business. Communication can be even more difficult if your third-party logistics provider is in a different location, or when using another partner (such as an international freight forwarder) in another country. Language barriers, different time zones, and cultural differences can all impact your attempts at communication. To address these issues, implement a schedule of regular check-ins or planned performance reviews. It’s also critical to choose a third-party logistics provider experienced in your company’s industry that can provide the level of communication to meet your business needs.
Now that you know the third party logistics advantages and disadvantages, you are well equipped to make the best logistics decision for your business. Using a third party logistics business model is a great option for some, but for other businesses it will make sense to keep warehousing and fulfillment in-house.